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This is a transcription of the Mullooly Asset Management podcast from March 30, 2011.

Hello, this is Tom Mullooly and this is the Mullooly Asset Management podcast for Wednesday, March 30, 2011.

This week we’re going to be talking about the market and we’re also going to be talking about the column issued by John Dorfman on Bloomberg.com. This was issued on March 27, that was Monday, 2011. What we do in these podcasts is, normally we’ll take a look at the stocks that are mentioned by Dorfman, and the reason why we do this is because Dorfman is a syndicated columnist, in fact, a lot of clients have mentioned to me that they read Dorfman’s column in their local paper each week. What he does is, he’ll mention a few names that are interesting to him from a fundamental perspective, we use a technical approach when we are making decisions on managing your money. And so what we do is we take his fundamental suggestions, even though they’re not recommendations from us, we put them up on a point and figure chart and try and make a decision whether it’s worth a look from a technical perspective.

But a lot of times Dorfman kind of spins off the track and starts talking about other things, which lead into great discussions, some of them may come onto the podcast, some of them don’t. But he starts out this week by saying, “There’s a truth in the old Wall Street saying, the market climbs a wall of worry.”

Well, you know, that wall of worry concept I’ve heard for 25 years and that might be true, but, you know, when stocks and when stock markets collapse, no one really gives a damn about all those old stories. What they want to know—they want to know two things. First, could we have seen this market drop coming? And two, what could we have done differently to get out of harm’s way? There’s very few people in my profession who really have an answer for those questions. Part of the reason why is because there’s a large percentage of people who do what I do who are predisposed to being optimistically bullish nearly 100% of the time. In fact, most of the people in my line of work who work with individuals don’t really get defensive or don’t get bearish, usually until it’s too late.

But it’s interesting, I have conversations with my clients each and every day and over and over I hear things like, “Tom, I don’t like the news,” or “I don’t like the economy right now,” or “Tom, I just don’t like this market.” And many people, I found after working with other advisors when they say that, they’re almost in the wrestling pose because they’re ready for some arm twisting or some mental gymnastics that we’re going to have to do where I’m going to have to try to talk over them or prove to them that they’re wrong and that they really need to be optimistically bullish 100% of the time.

You’re not going to get that spin from me. I really don’t think it’s in our best interests to put on the rose-colored glasses and always look at things optimistically. There’s times when we should be in the market and then there’s times when we shouldn’t be in the market.

So, getting back to Dorfman’s column, he talks about how, you know, last year the news in the market concerned Goldman Sachs, oil spill in the Gulf of Mexico, talked about what was going on in Greece and the rest of the countries in Europe that were going through their problems. And this year we’ve been focused on the earthquake in Japan, the nuclear problems that they’re having and now Libya. And so he talks about how the market tends to climb a wall of worry and while we’re focused on these problems, we may not be a year from now.

He gave a couple of examples and then he went on to his individual companies. And he mentioned Vishay Intertechnology, the symbol on the stock is VSH, it’s an electronics company. The chart actually looks okay at this point. It’s had a huge run up in the last 12 months but the stock is only given one recent sell signal and I’ll probably put Vishay on my list of names to watch going forward.

The next company that he mentioned was The Buckle, which is a retailing company, the symbol is BKE, and that stock is sitting at a triple top, hasn’t made a triple top buy yet but this is another pattern that looks pretty interesting. I will also note that it’s at a multi-year high here.

Next he mentioned MKS Instrument, a company I’m not familiar with, but like Vishay, it had a huge run up last year and is now sitting at a double top, so another name that I’m going to put on my monitor and watch, I don’t want to be in a hurry to buy it.

And the last company that he talked about was Carter’s, which is in the textile group, a lot of you know Carter’s because they are the leading manufacturer of baby clothes. This stock had a nice run up at the end of last year, but since the beginning of the year, it’s gone from the mid 30’s and it’s approaching it’s support line down around $25. It’s now balancing around $27.

I want to go back, though, to what Dorfman was talking about with this wall of worry. This is something that you hear over and over while the market’s going up and people have no explanation for it. It’s hard to nail down one reason why the market went up today a lot or why the market went down a lot. There’s usually more than one reason why a market will move. The point and figure charts that I use to manage your money will occasionally flip between offense and defense. And you need to understand this.

When the charts flip to defense, these are indicators, it doesn’t mean that we want to rush right out and sell everything. It tells us to be ready, be defensive and be ready for drops. Be ready for news to hit the market that might be bad. Or news might hit the market that a few months ago might have been okay, now it’s considered bad news. So we want to be in the ready position and I can tell you from coaching Little League that it’s hard to catch a grounder or a pop fly if you’re not in the ready position. So when our indicators change from offense to defense, we want to be in the ready position.

So what do we do?

The first thing, when our indicators go on defense, is we want to stop buying things. We also want to now start picking through our list and let’s get rid of things where, you know, we have a nice profit, let’s just take some money off the table. If the market conditions continue to be defensive, then we want to start throwing overboard the companies that really have poor technical attributes and we want to just stick with the things that are really, really good and have great relative strength and we can stick with through longer periods. If conditions continue to get more defensive, we’ll continue to do more selling.

To answer the questions that people really want to know, you know, when the market has gone down, is one, could we have seen this coming? Yes, definitely. We’ll see a lot of the short-term indicators flip over to defense, then we’ll see the intermediate-term indicators follow, when the longer-term indicators flip to defense, it’s time to then really take corrective action.

The second question, what could we have done to get out of harm’s way? Well, that’s why we have a game plan and I’m afraid to say that there are a lot of folks who are optimistically bullish nearly 100% of the time, you know who I’m talking about, they tend to operate without a game plan, and that’s a little frightening. In our short-term indicators at the moment, they have flipped between offense and defense several times just through the months of February and March. At this very moment, both of the short-term indicators that I look at are back in X’s, that’s good, but we see a lot of this back and forth motion, and that tends to give us closer buy and sell signals.

The intermediate-term charts are defensive and that’s important to know because even as the market has traded well over the last several days, we’ve seen the market up 50, 60 points each of the last 3 days, including today. The bullish percent indicators that we use, the intermediate-term indicators, have not budged at all, they continue to stay defensive. Long-term market still looks great.

So what that tells me is that we should expect corrective type of action in the market where we’re going to see, we’ve already seen a 5 or 6% move, depending on which index you use. We’ve seen a 5 or 6% drop. We’ve seen a recovery of nearly 5 or 6%. All that’s done is created more columns on our charts. So that puts a buy signal close by, but it also puts a sell signal close by. And so we have to be ready for potential problems. I’m more interested when we’re on defense, I’m far more interested in preserving capital than trying to reach out and take a whole lot of risk, I just don’t think it’s worth it, especially since we manage a great deal of retirement assets for our client, this is money that people need to live on.

Again, we’re not trying to make stock market recommendations or recommendations on individual stocks through these podcasts, but if you do have questions about your individual holdings or about the game plan or about where you’re going with your money, by all means, pick up the phone and call us. You can reach us here in New Jersey at 732-223-9000, or you can find us on the web at www.Mullooly.net. That’s M-u-l-l-o-o-l-y.net.

Again, we appreciate you listening and we will speak to you again next week.

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